Escaping the trap of ‘more Europe’

Why Brussels should back Britain’s EU vision

by Hans-Olaf Henkel in Brussels

Wed 23 Mar 2016

The euro area saga has profound implications for the European Union, with consequences far beyond the borders of the southern countries immediately hit by the crisis. The tragedy is bleeding into Shakespeare’s homeland, contributing to the factors potentially pushing the UK out of the EU. Britain’s leaders must understand that the euro is also their problem. Non-membership of the euro doesn’t make Britain immune to the consequences of its shortcomings.

Britain’s vision for a future reformed EU, embodying the principles of subsidiarity, self-governance and strengthening the single market, represents the best strategy for a prosperous and strong Europe. So the British call for a reformed EU deserves Europe-wide support. However, the objective favoured by Britain goes against the 'ever closer union' embedded into the single currency by the European elites.

This misplaced political romanticism has turned out to be a trap. It has caused widespread economic misery, undermining the social fabric of many European societies. By breathing life into radical populist parties that question the benefits of European integration, Europe’s problems endanger the EU itself.

The unfortunate reality is that the single currency has long been too weak for Germany and too strong for southern Europe, including France. The one-size-fits-all monetary policy suits nobody. To overcome this handicap and to make the European economy work again, the conventional wisdom in Brussels calls for a transfer union to back the euro. Yet a centralised European political union with a common treasury goes against the interests of European economies.

The euro rescue policy is based on a blind commitment to saving the euro 'at all costs'. This largely explains why, contrary to the US and the UK, the euro area is still awaiting economic recovery. More harmonisation, centralisation and debt socialisation are not the answer. It can be accomplished only by rejecting the failed philosophy of 'ever closer union', and dismantling the euro area in a controlled manner.

Britain’s newly negotiated European special status protects the UK from the principle of ‘ever closer union’. Yet the EU as a whole still adheres to 'more Europe' as a solution to the euro’s woes – and this seriously diminishes the EU’s attractiveness for the British public.

Many aspects of new European financial legislation and the banking union undermine vital British interests, and transfer more power to Brussels. Moreover, the euro bloc is prone to constant crisis. A suboptimal currency area will not be subject to a rule-based regime. Promises made to governments, including Britain’s, will be continuously broken.

The unfolding Greek drama underlines this point. In July 2015 EU leaders decided to use an EU-wide rescue scheme, the European Financial Stabilisation Mechanism, to grant a bridge loan to Greece, despite a previous promise to the British government that this would not be used for euro bail-outs.

Given this, how can anyone expect the British public to believe in the EU? The euro’s continuous mismanagement creates an image of the European project as a failure. This is not an argument for staying in the EU.

Yet Britain still benefits greatly from the EU in many aspects. The best scenario for Britain, and indeed the EU itself, would be if Britain stays in the EU and champions the case for a controlled euro break-up. In its hour of crises, Europe needs British leadership to navigate the storm.

Hans-Olaf Henkel is a former Chief Executive of IBM Europe, a former head of the German Federation of Industries, and a member of the OMFIF Advisory Board. He is a member of the European Parliament and Vice-Chair of the European Conservatives and Reformists Group. He is Vice-Chair of New Direction, a European conservative think-tank based in Brussels. This is No.18 in the series.

OMFIF's series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.